Wednesday, December 7, 2011

Apartment construction and public funds

By public funds I am talking about tax revenue that PDC collects and distributes to the lucky few developers. The ostensible reason that PDC 'invests' property tax revenue is that the projects are needed for the public good - affordable housing - but private business will not take the risk because the expected returns (without public funding) are not sufficient. It seems like there is an equation where risk taking variable is set to zero and profit taking is a constant.

A decent story by Brad Schmidt in the Oregonian has highlighted a problem with the city's housing department. The city built and owned Headwaters apartments were to be 'affordable' for the middle working class As it turns out the project instead of being for those in need of affordable housing, it has been for those that are far better off.

The apparent plan was for the city not to just 'invest' public funds but to fund and own Headwaters. Thus the city would rent at market rates and re-invest the profits from the rents to create affordable housing elsewhere. Of course it didn't happen. So instead of being affordable housing for the working class, it became market rate housing with no re-investment.

Now to achieve market rates, the city had to manipulate the calculation of the actual rents charged. This manipulation was necessary because the public funding came from sources that ordinarily require that rents be affordable to those earning 80% or less of the city's median income. Median household income is $$48,053. Thus, through the manipulation the apartments were open to those making $97,200.

Not only did the city exclude the targeted residents, the city pays no property taxes - thus taking tax revenue from the county. Interesting is that it seems that if the city had to pay taxes - the rents would have to be higher than market rates. Something not quite right here. And of course - a developer did quite well.

You know it is not right when none of the 'leaders' will discuss it. Governments should not be the apartment business - they lack the skills, ethics, and leadership